June 2019 (www.wigowir.com) What Is Going On With Interest Rates

June 3rd, 2019

Instructions on how to read this blog: Below is the news for the month when it happened and the market’s reaction.  For a full view of the month start at the bottom and work your way up. If want to know what just happened start at the top. All Times are Eastern Standard Time.  When the price of Mortgage Backed Securities (MBS) goes down rates go up, and when the price goes up rates come down. Remember in the bond market Bad News is Usually Good News and Good News is Usually Bad news. 

Views You Can Use updated monthly: http://www.mmgweekly.com/m/index.html?SID=78421a2e0e1168e5cd1b7a8d23773ce6

Newsletter updated weekly: http://www.mmgweekly.com/w/index.html?SID=

Friday - June 28  

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Next week:

The upcoming week is holiday-shortened with the 4th of July on Thursday. The Bond markets will close early on Wednesday at 2:00 p.m. ET and all US markets will be closed on the 4th for Independence Day. All US markets are open with normal trading hours on Friday. 

This is typically a slow trading week, but not this time around. With US/China headlines coming over the weekend, there is no telling what could happen Monday morning in both Stocks and Bonds.

Moreover, with many traders away for the big vacation week, the low volume in financial markets could spark some exaggerated price movements -- meaning rates can swing sharply. 

And if that weren't enough, come Friday the important Jobs Report will be delivered, which is likely the last meaningful economic report before the July Fed Meeting. This means if it is a stinker like the last three, you can count on a Fed rate cut at month's end. 

Reports to watch:

  • The national ISM Manufacturing Index will be released on Monday followed by the ISM Service Index on Wednesday.
  • ADP Private Payrolls will be delivered on Wednesday with Weekly Initial Jobless Claims on Thursday.
  • On Friday, Non-Farm Payrolls, Hourly Earnings, the Average Workweek and the Unemployment Rate will be released.

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Week in Review -"It's like watching paint dry"......That was this past week as financial markets around the globe traded in a bit of a calm sideways pattern ahead of arguably the most important economic event of 2019 -- the US/China trade talks at the G20 meeting. 

Depending on when you read this newsletter, the headlines may already be out as talks between President Trump and China's President Xi are to take place on Saturday, June 29th. 

How the trade talks go could have a major impact on global economies and even determine whether the Fed cuts rates, which at the moment is widely expected to happen in late July. 

So, if you are looking to buy a home or potentially refinance an existing one, it's hard to overstate the magnitude this event can have on rates for the foreseeable future. 

At the moment we are watching the 10-Year Note yield hover near 2.00%, which has served as a psychological barrier preventing rates from moving lower. How the US/China talks go could very well determine which side of 2.00% the 10-Year Note trades.

Why is this important? Because if the 10-Year Note yield moves lower and beneath 2.00%, it will push Mortgage Bond prices higher and home loan rates lower still. The opposite is also true. 

Bottom line: home loan rates are within .50% of the best rates ever and there is a very real chance we might see even lower rates in the very near future ... like next week.

If you or someone you know has questions about home loans, give me a call. I'd be happy to help. 

MARKET WRAP - Mortgage Bonds opened and closed near unchanged today in listless trading as the summer doldrums set in and ahead of the US/China trade talks on Saturday. Stocks closed higher and had a stellar 1st half of the year with the S&P up 17% year-to-date and the monthly jump of 6.9% was its best June gain since 1955. The yield on the 10-yr T Note settled at 2%, down from the close of 2.69% on December 31, 2018. The June Jobs Report will be released on Friday. Continue to float brand-new or files closing outside 30 days with a locking bias in the short-term. Have a great weekend!

Late Morning  Review - Inflation in the US remained subdued in May which should hold mortgage rates at current low levels for the foreseeable future. The Bureau of Economic Analysis reports that the Core Personal Consumption Expenditure (PCE) was unchanged at 1.6% year-over-year last month. The Core PCE is the Fed's favorite inflation gauge and strips out volatile food and energy. The Fed has set a target range of 2% and the Core PCE has been running below that level for several years. Within the report it showed that personal spending rose in May while April was revised higher. The consumer is alive and well.

The solid US economy over the past few years has had a positive effect for homeowners keeping up with the mortgage payments. The US Office of the Comptroller of the Currency (OCC) reports that 96.2% of those home loans assessed were current and performing at the end of the first quarter of 2019, up from 95.8% a year earlier. In addition, the report went on to reveal that there was a 26% decline in foreclosure action in the first quarter compared to last year. The strong job market is also helping homeowners to keep current on the home loans or refinancing.

Thursday - June 27

MARKET WRAP - Mortgage Bonds were able to close the day with decent gains ahead of month end and the G-20 meeting. The yield on the 10-yr T Note fell to 2.01%. The S&P and NASDAQ closed higher while lower shares of Boeing weighed on the Dow as it closed just slightly lower. WTI oil closed at $59.37/barrel, near unchanged. Tomorrow's data includes the Core PCE, Consumer Sentiment and the Chicago PMI. y.

Late Morning Review -  In economic news, the final reading on Q1 2019 Gross Domestic Product remained at a strong 3.1% while Weekly Initial Jobless Claims hover near 50-year lows rising 10,000 in the latest week to 227,000. The job market has been a beacon of strength for several years and will most likely continue to be strong. The closely watched Core PCE, the Fed's favorite inflation gauge, will be released on Friday.

Mortgage rates continued to decline this week and hover near the lows seen in September 2017. Freddie Mac reports that the 30-year fixed -rate mortgage fell 11 basis points to 3.73% with an average 0.5 in points and fees. Freddie Mac went on to say that home purchase applications improved by five percentage points compared to the previous month. In the near-term, Freddie Mac expects the housing market to continue to improve from both a sales and price perspective.

Pending home sales rebounded in May by 1.1% in this low mortgage rate environment after the dip seen in April. However, on an annual basis, sales slipped 0.7%, marking the 17th straight month of annual increases. Growth was seen in the Northeast, South and Midwest while the West saw a modest decline. Lawrence Yun, NAR chief economist, said, “Rates of 4% and, in some cases even lower, create extremely attractive conditions for consumers. Buyers, for good reason, are anxious to purchase and lock in at these rates.”

Wednesday - June 26  

MARKET WRAP - Mortgage Bonds edged lower again today after failing to overtake stiff resistance, despite stocks closing in mixed fashion. The yield on the 10-yr T Note ended at 2.05% from yesterday's 1.99% close. WTI oil settled at $59.34/barrel, +$1.51. Pending Home Sales and Weekly Claims will be released tomorrow. The Treasury will sell $32B 7-yr Notes.

Late Morning Review - Mortgage rates continued their decline the latest week as bond prices rose. Yields declined on the dovish Fed statements at last week's Federal Open Market Committee meeting. The Mortgage Bankers Association (MBA) reports that the 30-year fixed-rate mortgage fell eight basis points to 4.08% with 0.38 points, the lowest since September 2017. In addition, the MBAs Market Composite Index, a measure of total mortgage loan application volume, rose 1.3%. The Refinance Index rose 3% while the Purchase Index fell 1%.

In economic news, May durable orders fell 1.3% versus the -0.3% expected while April was revised lower to -2.8% from -2.1% though a big chunk of the losses were due to a downtick in orders for aircraft manufacturing. The data had little impact on the markets. Durable orders are higher-priced capital goods with a lifespan of at least three years, such as appliances electronics and the like.

Mixed trade comments from Treasury Secretary Mnuchin and President Trump are boosting stocks and applying some selling pressure on bonds in today's trading session. Treasury prices are modestly lower while the 10-year yield has risen to 2.01% after closing at 1.99% yesterday. Mr. Mnuchin said that a trade deal was 90% done before the talks stalled in early May while the President said a deal can be made but he's happy where the US is right now regarding the trade issues. President Trump went on to say that if a deal doesn't happen and the US does put tariffs on the remaining Chinese imports, the levies could be 10% instead of 25%.

Tuesday - June 25  

MARKET WRAP - US stocks fell today due in part to ongoing trade issues along with easing rate-cut enthusiasm from the Fed, although a 25bp rate cut is still on the table for July. However, the loss in stocks did not equate to higher Mortgage Bond prices as they closed near unchanged while Treasuries saw modest gains. The 10-yr yield closed at 1.99%. WTI oil settled at $57.87/barrel, near unchanged. Economic data tomorrow is limited to Durable Orders. The Treasury will sell $41B 5-yr Notes.

Late Morning Review - Sales of new homes fell by nearly 8% in May from April by to an annual rate of 626,000 units, below the 683,000 expected, reports the Commerce Department. From May 2018 to May 2019, sales declined 3.7%. Inventories are now just above normal rates of 6 months, currently at 6.4 months. The median price of a new home sold in May was $308,000, 2.7% lower than a year ago. New home sales declined in the Northeast and West with gains seen in the Midwest and South.

Trade and tariff tensions sent the Consumer Confidence Index lower in June to 121.5, down from 131.3 in May. In addition, consumers' assessment of current business conditions and labor market conditions also decreased during the month. Lynn Franco, Senior Director of Economic Indicators at The Conference Board said, "Although the Index remains at a high level, continued uncertainty could result in further volatility in the Index and, at some point, could even begin to diminish consumers’ confidence in the expansion.”

The Federal Housing Finance Agency (FHFA) released its House Price Index for April showing that home prices rose 0.4% from March. From April 2018 to April 2019, prices rose 5.2%. The FHFA House Price Index (HPI) is a broad measure of the movement of single-family house prices. The HPI is a weighted, repeat-sales index, meaning that it measures average price changes in repeat sales or refinancings on the same properties.

Monday - June 24 

MARKET WRAP - Not much action today for stocks and Mortgage Bonds as markets look for direction ahead of the G-20 Summit US/China trade talks. Mortgage Bonds closed flat to slightly higher while the major indicies (Dow, S&P,NASDAQ) closed in mixed fashion. Treasuries ended with gains as the 10-yr yield closed at 2.01% from Friday's close of 2.06%. WTI oil finished at $57.82/barrel, +$0.39. Activity may begin to heat up tomorrow with housing data, consumer confidence and a $40B 2-yr Note auction.

Late Morning Review - Economic data will be abundant this week, but besides the Core PCE, the Fed's favorite inflation gauge, most reports will take a backseat to the G-20 meeting at the end of the week. At the G-20 meeting, President Trump will meet China's President Xi to discuss trade issues between the world's largest economies. The outcome of the talks between the two nations could impact the markets as well as home loan rates. Formed in 1999, the G-20 has a mandate to promote global economic growth, international trade, and regulation of financial markets. The G-20 is a group of finance ministers and central bank governors made up of 19 of the world's largest economies along with the European Union.

US stocks are mixed ahead of this week's events and are quiet as the summer doldrums begin to set in. 
The S&P closed at an all-time record high last on hopes of interest rate cuts by the US Federal Reserve Bank. The bond markets are also quiet while the yield on the 10-year T Note remains at two-year lows. Mortgage rates begin the week at the lows seen in September 2017 due in part to low inflation levels along with slowing global economic growth.

Economic data will be abundant this week, but besides the Core PCE, the Fed's favorite inflation gauge, most reports will take a backseat to the G-20 meeting at the end of the week. At the G-20 meeting, President Trump will meet China's President Xi to discuss trade issues between the world's largest economies. US stocks are mixed ahead of this week's events and are quiet as the summer doldrums begin to set in.

Friday - June 21  

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Next Week - A plethora of economic data will be released in the upcoming week, but besides the Core PCE most reports will take a backseat to the G-20 meeting at the end of the week. 

At the G-20 meeting, President Trump will meet China's President Xi to discuss trade issues between the world's largest economies. The outcome of the talks between the two nations could impact the markets as well as home loan rates.

Formed in 1999, the G-20 has a mandate to promote global economic growth, international trade, and regulation of financial markets. The G-20 is a group of finance ministers and central bank governors made up of 19 of the world's largest economies along with the European Union. 

In addition to the closely watched Core PCE, data out in the upcoming week includes housing and manufacturing along with consumer attitudes. 

Reports to watch:

  • Housing data comes from Tuesday's S&P Case-Shiller Home Price Index and New Home Sales followed by Pending Home Sales on Wednesday.
  • Consumer Confidence will be delivered on Tuesday with Consumer Sentiment on Friday.
  • Durable Orders will be released on Wednesday.
  • The closely watched Core PCE will be disseminated on Thursday along with Personal Income and Spending and the third read on Q1 2019 GDP.

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Week in Review - This past week the Federal Reserve, aka "The Fed", held their June meeting and as expected, left rates unchanged. 

However, they said some key things which helped both Stocks and Bonds move nicely higher, with rates touching the best levels in 21 months. 

The Fed removed the word "patient" in their Monetary Policy Statement to describe their monetary policy approach. This means they will react quickly with a rate cut and not be so "patient" in the future. 

They also cited many "uncertainties" that may require a Fed rate cut -- slowing global economies, trade and disinflation. 

One part of the Fed's dual mandate is price stability or inflation, and with inflation moderating the Fed wants to do what it can to "allow" inflation to rise -- they see cutting rates as a measure. 

So now, financial markets are fully expecting a rate cut at the July 31 meeting. 

Bottom line: a Fed rate cut is designed to keep the economy from falling into a recession. This coupled with the best rates in nearly two years is a wonderful story as summer officially begins.

If you or someone you know has questions about home loans, give me a call. I'd be happy to help. 

MARKET WRAP - After a hectic week, Mortgage Bonds closed lower today and below the fresh 2019 highs hit yesterday. US stocks closed slightly lower after the S&P closed at an all-time high yesterday on rate cut euphoria. The 10-yr yield rose to 2.06%. Oil prices gushed higher this week on the US/Iran tensions with WTI rising by $0.20 to $57.66 today and up nearly 10% for the week.

Late Morning Review - The National Association of REALTORS® reports that existing home sales in May rose 2.5% from April to an annual rate of 5,340,000 units versus the 5,300,000 expected. Sales in April were revised higher. From a year ago, sales fell by 1.1%. Gains were seen across all major regions of the US. The median existing home sales price was $277,700, up 4.8% from May from a year ago. May’s price increase marks the 87th straight month of year-over-year gains. Lawrence Yun, NAR’s chief economist, said the 2.5% jump shows that consumers are eager to take advantage of the favorable conditions. “The purchasing power to buy a home has been bolstered by falling mortgage rates, and buyers are responding.”

US stocks are slightly lower as risk appetite dampens on the US/Iran tensions. The S&P closed at an all-time record high yesterday of 2,954.18 on the rate-cut euphoria along with hopes for a positive trade outcome between the US and China. This morning, Fed Vice Chair Clarida said the economy is solid, the labor market is strong while inflation remains near the Fed's objective. With today being the first day of summer, trading volumes will begin to decrease by this afternoon as players look to escape early to kick off the weekend.

Last Week - This past week the Federal Reserve, aka "The Fed", held their June meeting and as expected, left rates unchanged. 

However, they said some key things which helped both Stocks and Bonds move nicely higher, with rates touching the best levels in 21 months. 

The Fed removed the word "patient" in their Monetary Policy Statement to describe their monetary policy approach. This means they will react quickly with a rate cut and not be so "patient" in the future. 

They also cited many "uncertainties" that may require a Fed rate cut -- slowing global economies, trade and disinflation. 

One part of the Fed's dual mandate is price stability or inflation, and with inflation moderating the Fed wants to do what it can to "allow" inflation to rise -- they see cutting rates as a measure. 

So now, financial markets are fully expecting a rate cut at the July 31 meeting. 

Bottom line: a Fed rate cut is designed to keep the economy from falling into a recession. This coupled with the best rates in nearly two years is a wonderful story as summer officially begins.

If you or someone you know has questions about home loans, give me a call. I'd be happy to help. 

 

Thursday - June 20

MARKET WRAP - Rate-cut euphoria lifted US stocks today while the 10-yr yield settled at 2.02% with Mortgage Bonds finishing slightly lower. The closely watched S&P 500 closed at an all-time high of 2,954.18 as the "Goldilocks" economy marches on. In addition, mortgage rates remain near lows seen in September 2017. WTI oil closed at $57.12/barrel gushing higher by $3.59. Existing home sales will be released tomorrow morning. With today's late day sell off and subsequent Alert to Lock, this is another reminder that you should be locking loans in the short-term, at least 30 days until closing, while floating longer-term files.

Late Morning Review - We will use our tools as appropriate to sustain the expansion. Participants (Fed members) expressed concerns a about a more sustained shortfall of inflation," said Fed Chair Powell at his press conference yesterday. Mr. Powell went on to say that Fed members cited weaker business investment and cross currents as reasons for seeing cuts. In addition, the Fed chair said inflation is coming to target more slowly than expected while rising wages are not providing an upward push on inflation. The Fed left the benchmark Fed Funds Rate unchanged at this week's Fed meeting.

The takeaway: a cut to the Fed Funds Rate is essentially guaranteed in July while there is a third of a chance of a .50% cut!!! The statement and Powell's words sent mortgage bonds, treasuries and stocks soaring higher. The S&P 500 is at fresh all-time highs. The all-time closing high for the S&P is 2,945.83, hit back on April 30 before the May sell-off. The 10-year T Note yield dipped below 2% this morning to 1.97% before rising to the current level of 2.01%.

Mortgage rates inched higher this week though remain at the lows seen in September 2017. Freddie Mac reports that the 30-year fixed-rate mortgage rose just two basis points to 3.84% with an average 0.6 in points and fees. Sam Khater, Freddie Mac’s chief economist, says, “While the continued drop in mortgage rates has paused, homebuyer demand has not. Today’s low rates, strong job market, solid wage growth and consumer confidence are typically important drivers of home sales.”

Wednesday - June 19  

2:31 PM ET - The Fed leaves the benchmark Fed Funds Rate unchanged at 2.50%.  Fed says it will act as appropriate to sustain expansion. Labor market remains strong. Household spending picks up, business investment soft.  A July cut to the Feds Funds Rate looks to be on the table with another cut later in the year.  Fed says inflation has declined. Remove "patient" from the wording.Mortgage Bonds push into positive territory.  Fed projects annual Core PCE at 1.8% in 2019, below the 2% target rate.  Powell says the goal of the Fed is to sustain the current economic expansion.   Powell says inflation remains low but expects it to pick up.

Late Morning Review - Mortgage application volumes slowed in the latest week after the big gains seen in the previous week, reports the Mortgage Bankers Association (MBA). The Market Composite Index, a measure of total mortgage loan application volume, fell 3.4% in the week ended June 14, 2019. Both the Refinance and Purchase Indexes fell 3.5% though the share of refinance share of applications was still at the highest level since January 2018.

Joel Kan, MBA's Associate Vice President of Economic and Industry Forecasting said, "Purchase applications decreased more than 3 percent last week, but were still up almost 4 percent from last year. Strong demand from first-time buyers and low unemployment continue to push this year's purchase activity above a year ago." The 30-year fixed-rate mortgage rose two basis points to 4.14% with 0.38 in points, the jumbo rate was unchanged at 4.04% with 0.17 in points while the FHA rate increased three basis points ti 4.12% with 0.44 in points.

Good news for the high-priced housing market in the San Francisco Bay area. Tech and search engine giant Alphabet (Google) announced that the company will commit $1 billion to spur on housing construction as the tech sector looks to address the affordability crisis in the region. Google said the project will include the redirecting of $750 million of company owned land from commercial to residential use where 15,000 units will be built, across all income levels, reports the Wall Street Journal.

 

Tuesday - June 18  

MARKET WRAP - Positive trade headlines along with a dovish global environment sent stocks soaring today while Mortgage Bonds closed with meager gains. The yield on the 10-yr T Note hit 2.01% early this morning before closing at 2.06%. It's all about the Fed as members will release the Fed statement at 2:00 p.m. ET tomorrow with economic projections included. Fed Chair Powell will hold a press conference at 2:30 p.m. ET.

Late Morning Review - May housing starts fell 0.9% from April to an annual rate of 1,279,000 units versus the 1,240,000 expected while April was revised higher to 1,281,000 from 1,139,000. In addition, March was also revised higher as lower mortgage rates boosted the sector. Building permits, a sign of future construction, came in near unchanged at 1,294,000 with April revised higher to 1,290,000 from 1,259,000. Overall, a solid report.

Fannie Mae released its June Economic and Housing Outlook revealing that the housing market is expected to provide support to the larger US economy in 2019 via lower mortgage rates, and increasing sales pace. In addition, Fannie Mae said that supporting affordability, home price appreciation remains near its slowest pace in seven years. On the economic front, Fannie Mae sees full year Gross Domestic Product to rise by 2.1% with a 1.5% gain in 2020 due to weakening global economies and softness in business fixed investment.

US stocks are surging today after the European Central Bank Chief Mario Draghi said the central bank will go all in on accommodative monetary policy if the region's economy continues to slow. In addition, the White House announced today that President Trump and China's President Xi are to have an extended meeting next week at the G-20 Summit in Japan. The closely watched S&P 500 Stock Index is now just below all-time highs hit on April 30 due to a solid economy, 50-year low unemployment along with low inflation.

Monday - June 17 

MARKET WRAP - Not much movement for stocks and bonds today as market participants were on hold ahead of the Fed statement release Wednesday afternoon. Mortgage Bonds continued their slow descent lower as the Fannie 4% 30-yr closed at $103.09, right on support. Stocks closed with meager gains. 10-yr yield near unchanged at 2.08%. WTI oil settled at $51.76/barrel, -$0.75. May Housing Starts and Building Permits will be released tomorrow. 

Late Morning Review -  Fitch Ratings reports that home price growth slowed in Q1 2019 to 3% annually from the 4% seen in Q4 2018. However, Fitch says the slowdown in home price gains should plateau due to the decline in mortgage rates along with a limited supply of new homes. The report went on to reveal that Fitch said only a small number of housing markets look to be at risk for a price correction.

It's Fed week! Fed members kick off their two-day FOMC meeting on Tuesday and ends Wednesday at 2:00 p.m. ET with the release of the Fed's monetary policy statement along with economic forecasts. Immediately following the release, Fed Chair Powell will hold a press conference at 2:30 p.m. ET. There is just a small chance of a cut to the Fed Funds Rate at this meeting but chances spike to 85% at the July meeting.

US Stocks are modestly higher and remain just below all-time highs as the economy continues to expand. On Friday, the Atlanta Fed upped its forecast for Q2 2019 Gross Domestic Product (GDP) from 1.4% to 2.1%, a near 50% increase! The increase comes on the heels of strong retail sales in April and May with solid industrial production numbers. The Atlanta Fed is not known for their accurate forecasting of GDP - but Q2 GDP may show an upward surprise.

Friday - June 14  

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Next Week - It's Fed week! 

The upcoming week will see data from the housing and manufacturing sectors, but those reports will take a backseat to the two-day Federal Open Market Committee (Fed) meeting.

The meeting kicks off on Tuesday and ends Wednesday with the release of the monetary policy statement which will also include a summary of economic projections. Fed Chair Powell will hold a press conference immediately following the release at 2:30 p.m. ET. 

There is no rate cut expected at this meeting, but what comes of the Statement and press conference could move the markets -- so stay tuned. 

The markets will also have to contend with the continued saga surrounding the US/China trade issues. 

Reports to watch:

  • Manufacturing data comes from Monday's Empire State Index followed by Thursday's Philadelphia Fed Index.
  • On Tuesday, Housing Starts and Building Permits will be released with Existing Home Sales being delivered on Friday.
  • As usual, Weekly Initial Jobless Claims will be released on Thursday.

 

Week in Review - What a difference a month makes. In May, stocks fell sharply, and interest rates declined each week. June has been a different story. The Fed has signaled rate cuts are likely coming. Stocks have been rallying higher, and the decline in interest rates has stalled. 

The Fed can't control home loan rates. Those move mainly on inflation and expectations of inflation in the future. Inflation has remained tame for the past decade and is the main reason why home loan rates have stayed low as well. 

This past week, we received another reading on consumer inflation, the Consumer Price Index (CPI), which confirmed there are no price pressures or inflation threat to the economy. 

The result: the odds of a Fed rate cut have climbed to 85% for the July Fed Meeting on the idea that the Fed can comfortably cut rates and "allow" inflation to creep into the economy. 

Also keeping home loan rates near two-year lows is the uncertainty and lack of resolution with the US/China trade turmoil. The next step is a potential meeting between US and China at the G20 Meeting June 28-29. Mark your calendar. This is an important event, because as this trade dispute goes so do the economies around the globe. 

Bottom line -- we are seeing a strong economy, rising stocks, and two-year lows for home loan rates.

If you or someone you know has questions about home loans, give me a call. I'd be happy to help. 

MARKET WRAP - Mortgage Bonds edged lower in today's session after GDP forecasts for Q2 2019 were pushed higher due in part to the strong Retail Sales data in April and May. Stocks ended modestly lower having cut most of their early losses. The 10-yr yield settled at 2.08%. WTI oil closed at $52.54/barrel, +$0.26. Heading into the weekend, float if you can ahead of the Fed on Wednesday. But if you have loans that are closing within 30 days, consider locking and capture the lowest rates since September 2017

Late Morning Review - The consumer is alive and well in the US as May retail sales jumped 0.5% from the gain of 0.3% in April, which was revised higher from a -0.2% while March was also revised higher. When stripping autos, sales jumped 0.5% from the gain of 0.5% in April which was revised higher from 0.1%.

When April's weak retail sales numbers were released, it was said by pundits that consumer confidence for spending was "shaken!" That theory has been flushed the drain. Consumers spent on a broad array of goods as the strong sales for April and May could boost Q2 Gross Domestic Product. The Goldilocks economy lives on with no signs of a recession in the foreseeable future or for all of 2019.

Applications to purchase new homes surged in May from the previous year due in part to solid consumer confidence as well as a strong labor market. The Mortgage Bankers Association reports that its Builder Application Survey for May showed a 20% increase for mortgage applications for new home purchases, up 0.1% month-over-month from April to May. Joel Kan, MBA's Associate Vice President of Economic and Industry Forecasting said, "Declining mortgage rates and more new entry-level supply are good news for the housing market this summer."

 

 

 

Thursday - June 13 

MARKET WRAP - Not much action for Mortgage Bonds today as they traded near unchanged while stocks ended with gains as energy shares rose on the Mideast oil tanker issues. The yield on the 10-yr T Note edged lower to 2.09%. WTI oil rose $1.23 to $52.37/barrel. We are advising floating as the week draws to a close and ahead of next week's Fed meeting, if the market allows us. Retail Sales will be released tomorrow.

Late Morning Review - After six straight weeks of declines, mortgage rates held steady this week and remain at lows seen in September 2017. Easing trade tensions with Mexico helped to stabilize the markets. Freddie Mac reports that the 30-year fixed-rate mortgage was unchanged at 3.82% today with an average 0.6 in points and fees. Freddie Mac says these historically low rates should provide continued opportunities for current homeowners to refinance their mortgages which, combined with new homebuyer activity, will help sustain the momentum in the housing market in 2019.

The US capital markets will be zeroing in on next week's two-day Fed meeting which kicks off on Tuesday and ends Wednesday with the 2:00 p.m. ET release of the monetary policy statement. There is a very small probability (20%) of a cut to the benchmark Fed Funds Rate but that surges to an 85% chance in July. The Fed will also release a summary of economic projections with the monetary policy statement.

Americans filing for first-time unemployment benefits remained near 50-year lows in the latest week as the labor market continues to tighten. Weekly Initial Jobless Claims rose by 3,000 in the latest week to 222,000. The four-week moving average of claims, which irons out seasonal abnormalities, increased 2,500 to 217,750 last week.

Wednesday - June 12

MARKET WRAP - Mortgage Bonds were boosted today by modestly declining stock prices and low consumer inflation. Equity losses were contained as Fed rate cut hopes offset negative trade issues. The 10-yr yield settled at 2.12%. There are no major economic reports due for release tomorrow. Continue to advise floating but with mortgage rates at lows seen in September 2017,

Late Morning Review - Consumer inflation remained tame in May as rising food prices were offset by a decline in the price of gasoline at the pumps. The Consumer Price Index (CPI) rose just 0.1% in May after a 0.3% gain in April. The Core CPI, which strips out food and energy, matched estimates of 0.2%, as an increase in food prices were offset by declining prices at the gas pumps. Year-over-year CPI rose 1.8% from April's 1.9% while the Core rate increased 2% from 2.1%. Low inflation will keep the Federal Reserve on course this year to cut interest rates. The uncertainty surrounding trade tensions with Mexico and China last week along with weaker than expected job growth pushed mortgage rates lower falling a sizable amount in the last two weeks. The Mortgage Bankers Association reports that the 30-year fixed-rate mortgage fell eleven basis points to 4.12% with 0.33 in points in the week ended May 31, 2019. In addition, the Refinance Index soared nearly 47% while the Purchase Index jumped 10%. The 30-year fixed-rate mortgage for jumbo loans fell to 4.04% with 0.17 in points. The survey covers over 75% of all U.S. retail residential mortgage applications, and has been conducted weekly since 1990. US stocks are lower this morning after the big gains seen in June thus far. The closely watched S&P 500 gained 6% from the close of 2,744 on June 3 until yesterday's intraday high of 2,910 when the rally faded as investors looked to book some short-term profits. With stocks near all-time highs, small business and consumer confidence near record highs, low inflation and a growing economy, the "Goldilocks" economy marches on with the odds of a near-term recession low.

 

Tuesday - June 11  

MARKET WRAP - Mortgage Bonds traded close to unchanged in today's session despite stocks flip flopping from positive to negative eventually ending the day near unchanged. The recent stock rally fizzled today as investors looked to book some profits. The yield on the 10-yr T Note closed at 2.14%. WTI oil settled at $53.34/barrel, near unchanged. The monthly bond rollover will take place after the close of trading this evening but recent rollovers have been minuscule. CPI will be released tomorrow morning. The Treasury will sell $24B 10-yr Notes. 

Late Morning Review - Mortgage credit availability increased in May due in part to a fifth straight gain in the jumbo index. The Mortgage Bankers Association reports that its Mortgage Credit Availability Index (MCAI) rose 1.9% in May to 189.5. A decline in the MCAI indicates that lending standards are tightening, while increases in the index are indicative of loosening credit. "Credit supply increased 2% in May, driven by the fifth straight gain in the jumbo index, which was up 7% and surpassed last month as the new all-time survey high," said Joel Kan, MBA's Associate Vice President of Economic and Industry Forecasting.

Small business optimism roared back in May to near historic highs due in part to strong hiring, investment and sales. The NFIB Small Business Optimism Index rose 1.5 points in May to 105.0. The report went on to reveal that earnings, job creation and compensation remained strong in May. NFIB President and CEO Juanita D. Duggan said, “The small business half of the economy is leading the way, taking advantage of lower taxes and fewer regulations, and reinvesting in their businesses, their employees, and the economy as a whole.”

Wholesale inflation remained tame in May as the Producer Price Index (PPI) rose 0.1%, in line with estimates while the Core PPI rate also met expectations. With trade headlines dominating the headlines, these minor economic reports, which are reported close to expectations, are not influencing the market. The more closely watched Consumer Price Index will be released tomorrow but again, in absence of a wild surprise, there should not expect much of a market reaction.

Monday - June 10

MARKET WRAP - Positive trade headlines between the US and Mexico were able to boost stocks again today adding to last week's Fed fueled stock rally on rate cut news. Higher stock prices pushed bond prices lower, yields higher, though stocks did close well off their best levels. Mortgage Bonds ended at their session lows, be on guard. The yield on the 10-yr T Note ended at 2.14% from Friday's low of 2.05%. The Producer Price Index will be released tomorrow morning. The Treasury will sell $38B 3-yr Notes.

Late Morning Review - Due to the recent decline in the 30-year mortgage, refinancing your current mortgage could be beneficial to a large portion of mortgage holders. Black Knight reports that there are nearly seven million Americans that hold a mortgage that can now refinance at a lower rate of at least a 0.75% difference between their current mortgages and today's rates. The average savings could equate to $268 a month. Black Knight says that if each eligible mortgage holder refinanced, it would be an aggregate savings of of $1.8 trillion a month, which would surely boost consumer spending.

US stocks are higher to begin the new week and is adding to last week's gains. Stocks got a boost last week when the Federal Reserve signaled that the central bank may cut rates in 2019 in order to keep the economic expansion on track. Adding to the positive vibes in the equity markets this Monday morning is word the White House canceled tariffs on Mexico, citing progress on border security. The closely watched S&P 500 Stock Index is up 6.2% from June 3.

Fannie Mae reports that Americans' confidence in housing was near its survey in May fueled by a big jump in the "good time to buy" component. Fannie Mae released its Home Purchase Sentiment Index for May showing an increase of 3.7 points to 92, just below the 92.3 set in may 2018. A 13-percentage point increase if the "good time to buy" component drove the index higher. "Consumers’ sense of income growth and job security have moved lower from the highs established earlier in the year, which, if sustained, could weigh on the housing market in the second half of the year,” said Doug Duncan, Senior Vice President and Chief Economist at Fannie Mae.

Friday - June 7  

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Next Week -The upcoming week features several key economic reports, but trade issues and visions of rate cuts will continue to dominate the action.

Current trade headlines between the US and China, and the US and Mexico will continue to hold the US markets captive until a resolution can be agreed upon between the three countries.

Retail Sales and the Consumer Price Index will be released and will be key to gauge both consumer spending and inflation.

There will be no Fed speakers talking during the week as the quiet period begins ahead of the June 18-19 Fed meeting.

Reports to watch:

  • Wholesale inflation from the Producer Price Index will be released on Tuesday followed by the more closely watched Consumer Price Index on Thursday.
  • Weekly Initial Jobless Claims will be delivered on Thursday as first-time benefits hover near 50-year lows.
  • On Friday, Retail Sales and Consumer Sentiment will be released.

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Week in Review - For the sixth consecutive week home loan rates declined, once again fueled by the ongoing trade tensions between the US and China.

However, the decline in rates was halted on the notion the Fed is likely to CUT rates soon. Huh? That's right -- a couple of Federal Reserve members were speaking this week and suggested that the time might be right for a Fed rate cut.

How come home loan rates didn't improve further upon news? When the Fed cuts or lowers rates, they can only lower the Fed Funds Rate, which is an overnight lending rate between banks. The Fed doesn't control home loan rates.

When the Fed cuts rates it is doing so to fuel economic growth and/or allow inflation to rise -- both of these are bad for long-term rates like home loan rates. Additionally, Stocks love Fed rate cuts and moved nicely higher midweek, taking money out of Bonds thereby limiting their decline in yield or rates.

The ongoing trade tensions and slowing growth around the globe may very well continue to push home loan rates lower in the weeks and months ahead -- but we must now pay attention to the Fed who will look to "help" the Stock market from further declines by cutting rates. And anything that helps Stocks is usually not great for home loan rates.

Bottom line -- we are staring at 2-year lows in home loan rates and the time could not be much better to lock in on a purchase or refinance loan.

If you or someone you know has questions about home loans, give me a call. I'd be happy to help.

MARKET WRAP - A weak read on job growth coupled with slightly slowing wages lifted bond prices today while lowering yields. But stocks also rose on hopes of a rate cut along with positive trade headlines. The Dow gained 1,200 points this week from last Friday's close. Next week will be much of the same with trade news and rate cuts most likely dominating the headlines. Float into the weekend and as always, be sure to be tuned in Monday morning as we guide you through economic landscape. Have a great weekend!

Late Morning Review - And the survey says: 75,000 jobs created in May, well below the 180,000 expected. Downward revisions to March and April erased 75,000 jobs from what was previously reported. Job growth is averaging 164,000 in 2019, down from 229,000 over the same period in 2018. The unemployment rate remained steady at 3.6%, the Labor Force Participation Rate unchanged at 62.8%.

Total unemployed or the U6 number fell to 7.1% from 7.7% in May 2018 and was the lowest reading since December 2000. Average hourly earnings rose 0.2% month-over-month versus the 0.3% expected while year-over-year wages grew at a 3.1% pace and have been edging lower. Overall, a disappointing report but the markets will wait for June's data before a slowdown is declared.

One thing is for sure - a Fed rate cut to the benchmark Fed Funds Rate is coming. The soft Jobs Report increased the probability of a Fed rate cut in July to 78%. By year end, there is a 99% chance the Fed Funds Rate will be lower than current levels. What does it mean? Well - first off, Stocks love rate cuts and continue to rally this week on the notion the Fed will cut. If money flows aggressively into Stocks, it could be at the expense of Bonds.

 

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May Non-Farm Payrolls rise 75K vs the 180K expected. Unemployment Rate 3.6%, unchanged. Average hourly earnings month over month 0.2% vs 0.3% expected, year over year 3.1% from 3.2% in April.

Thursday - June 6  

Late Morning Review - Mortgage rates continued their descent this week due in part to the uncertainty surrounding the multiple-country trade issues along with low inflation levels. Freddie Mac reports that the 30-year fixed-rate mortgage fell to 3.82% this week from 3.99% with an average 0.5 in points and fees. It is the lowest rate seen since the fall of 2017. “These low rates are also good news for current homeowners. With rates dipping below four percent, there are over $2 trillion of outstanding conforming conventional mortgages eligible to be refinanced – meaning the majority of what was originated in 2018 is now eligible,” said Sam Khater, Freddie Mac’s chief economist.

Americans filing for first-time unemployment benefits continue to hover near lows seen in the late 1960s as the labor market continues to strengthen. Weekly initial jobless claims rose by 218,000 in the latest week, unchanged from the prior week. The four-week moving average of claims, which irons out seasonal abnormalities, fell 2,500 to 215,000. The report comes ahead of the closely watched Jobs Report for May which is due out Friday morning.

Gas prices at the pumps continued to edge lower this week due in part to rising gasoline and oil inventories along with fears of easing oil demand. Motor club AAA reports that the national average price for a regular gallon of gasoline fell to $2.78 today, down from $2.89 a month ago. A year ago the price was $3. “Gas prices have been trending lower now for the past month and there are no signs of pump prices changing gears toward more expensive for the summer season,” said Jeanette Casselano, AAA spokesperson.

Wednesday - June 5

MARKET WRAP - Stocks up again, Bonds went nowhere. Bond prices and yields finish day off the best levels. We may see rates move another leg lower but it won’t be in a straight line.

Late Morning Review - Mortgage rates continued to decline in the latest week due in part to the uncertainty surrounding trade talks between the US and China and the US and Mexico. The Mortgage Bankers Association (MBA) reports that the 30-year fixed-rate mortgage fell by ten basis points to 4.23% with an average 0.33 in points in the week ended May 31. The MBA went on to report that total mortgage loan application volume rose 1.5%, the Refinance Index rose 6% while the Purchase Index decreased 2%.

In labor market news, ADP reports that private payrolls rose just by 27,000 in May, well below the 170,000 expected and down from the gain of 271,000 in April. The breakdown shows that small businesses lost 52,000 jobs, medium businesses gained 11,000 while large businesses saw an increase of 68,000. Mark Zandi, chief economist of Moody’s Analytics, said, “Job growth is moderating. Labor shortages are impeding job growth, particularly at small companies, and layoffs at brick-and-mortar retailers are hurting.”

Dovish monetary policy rhetoric from Fed Chair Powell yesterday boosted the chances of a Fed Funds Rate cut in 2019 while pushing US stocks to their best gains since January 4. The markets are now expecting the Federal Reserve to cut rates as many as three times this year and depends on how the economy evolves during 2019. The June Federal Open Market Committee meeting is showing a 33% chance of an interest rate cut, July 70% with September almost at a 90% chance of a cut. If Friday's Jobs Report is weak, the probability of a hike will increase significantly.

Tuesday - June 4th

MARKET WRAP - The idea of a rate cut and a potential fix in China and Mexico trade deals took some of the shine out of bonds today. Stocks, while having a great day, have endured a bunch of technical damage so we should expect more volatility. Tomorrow brings ADP, if the number is positive, Bonds could take a hit and add to today’s losses. With that said, you might want to lock and protect those clients closing within 40 days. Others can be floating and watch $103.09, our new support one level.

Late Morning Review - Ongoing trade tensions continue to drive the trading action in the financial markets. The Dow and S&P are higher, while the NASDAQ is lower as regulatory fears lower hit Alphabet (Google) and Amazon. Treasury prices are higher but well off their best levels while mortgage bonds are near unchanged. The multi-front trade war between the US and China and the US and Mexico has put incredible selling pressure on stocks in May. The Dow, S&P and NASDAQ all lost close to 6% last month, their first negative monthly performance in 2019.

The only economic report being released today was the ISM Manufacturing Index for May coming in near expectations. The rest of the week features the ADP Report on Wednesday and the government's Jobs Report on Friday which includes non-farm payrolls, hourly earnings and the unemployment rate. There are no Treasury note or bond auctions this week. The Jobs Report is only one of a few reports that could move the markets in the current trade-war-dominated environment.

Mortgage rates remain at 16-month lows as the week begins while home price growth continues to slow, reports Black Knight. Black Knight reports that in March, which is typically a month that sees the largest home price gains of the year, home prices grew by just 1%, marking 13 consecutive months of home price deceleration. In addition, of the largest 100 US housing markets, 85 have seen price gains decrease over the past 12 months.

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Monday - June 3rd

MARKET WRAP - Mortgage Bond prices rose today but Treasuries were the big winners in the ongoing flight-to-safety. The question is how low can the 10-yr yield go? Could we see the 1%+ handle for the 10-yr yield this week? Possibly. Stocks closed mixed due to the ongoing trade wars, slowing global growth along with the tech wreck. 10-yr yield fell to 2.07% ... the session low was 2.06%. WTI oil settled at $53.25/barrel, -$0.25. There are no major economic reports due out tomorrow. 

Late Morning Review - Ongoing trade tensions continue to drive the trading action in the financial markets. The Dow and S&P are higher, while the NASDAQ is lower as regulatory fears lower hit Alphabet (Google) and Amazon. Treasury prices are higher but well off their best levels while mortgage bonds are near unchanged. The multi-front trade war between the US and China and the US and Mexico has put incredible selling pressure on stocks in May. The Dow, S&P and NASDAQ all lost close to 6% last month, their first negative monthly performance in 2019.

The only economic report being released today was the ISM Manufacturing Index for May coming in near expectations. The rest of the week features the ADP Report on Wednesday and the government's Jobs Report on Friday which includes non-farm payrolls, hourly earnings and the unemployment rate. There are no Treasury note or bond auctions this week. The Jobs Report is only one of a few reports that could move the markets in the current trade-war-dominated environment.

Mortgage rates remain at 16-month lows as the week begins while home price growth continues to slow, reports Black Knight. Black Knight reports that in March, which is typically a month that sees the largest home price gains of the year, home prices grew by just 1%, marking 13 consecutive months of home price deceleration. In addition, of the largest 100 US housing markets, 85 have seen price gains decrease over the past 12 months.

This week we will see the most important economic report for the month -- the May Jobs Report. Outside of February's soft reading, the labor market has been strong throughout 2019. 

On Wednesday, we may get an advanced look on the Jobs Report by way of the ADP Payroll number.

Right now, outside of high impact reports like the Jobs Report, economic data is taking a backseat to the trade issues between the US and China, as well as the geopolitical headlines out of Washington. 

If the Jobs Report reading is a disappointment and Stocks continue to decline, we will likely see increased chatter of a Fed rate cut in 2019. 

History has shown the first Fed rate cut comes 6 months after the last rate hike. The Fed last hiked rates in Dec 2018. We shall what happens next week. 

Reports to watch:

  • From the manufacturing sector, the Chicago PMI will be released on Monday along with the ISM National Manufacturing Index.
  • The ADP Private Payrolls Report will be delivered on Wednesday along with the ISM Non-Manufacturing Index.
  • Weekly Initial Jobless Claims and Productivity will be announced on Thursday.
  • That brings us to Friday's Jobs Report for May which includes Non-Farm Payrolls, the Unemployment Rate, Hourly Earnings, and the Average Workweek.

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Contact

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jmarbury@nationalbankofcommerce.com
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